How to invest

Making the decision to invest is the easy part: working out where and how to invest your money can be a whole lot harder. For example, which investments do you choose and where do you buy them? How can you be sure you'll make money and achieve your financial goals?

However, it doesn't have to be an uphill challenge. Breaking the process down into more manageable chunks makes it easier to pick the right investments for you. Let Moneywise guide you through the process.


The first step is to think about risk and exactly how much you can afford to take. You might be a naturally cautious person, worried that you will lose some – or worse all – of your hard-earned cash, or you may be a gung-ho adrenalin junkie happy to put your cash on the line if there is even a sniff of stellar returns. Probably, you fall somewhere between the two.

But before pigeon-holing yourself as a cautious, balanced or aggressive investor you need to think not just about your own personal views around risk – you need to put those into the context of your investment strategy, taking into account what you are trying to achieve and how much time you have before you will next need to get your hands on your money.

Take our quiz and find out your attitude to risk


No investment is without risk - even cash is a risk when you consider how its spending power can be hammered by inflation - however it is possible to control it.

Diversification is one of the best ways to reduce the risk of your portfolio – pile all of your eggs into one risky basket and there's the danger they'll all get smashed.

This can be done by investing in a range of different asset classes of which equities – or stocks and shares – is just one. Each asset class will respond in different ways depending on the economic circumstances, so when one might not be performing so well, another might be faring better. This means your overall returns might not take too much of a hit.

What asset classes should I invest in?


Once you know what you are investing for, how long you are able to invest and what your risk profile is you are in a much better place to start choosing investments.

You can buy individual stocks and shares in the companies you want to invest in, just as you can go out and buy corporate bonds or property – but for novice investors this can be high risk.

The easiest and cheapest way of investing in these asset classes are via collective funds – the most popular being unit trusts or open-ended investment companies - where your money is pooled with contributions from other investors. A fund manager monitors the markets and decides which investments to buy and sell according to the fund's mandate and risk profile. This provides expertise and economies of scale that you would not be able to achieve yourself.

Funds versus shares


You can buy funds direct from fund managers, but because they don't particularly want to encourage you to buy from them, you will have to pay the full initial charge, which is usually 5% of your investment.

It is cheaper and more convenient to buy from an investment platform – or fund supermarket – as this initial charge will, in the vast majority of cases, be waived.

Platforms sell funds from across the investment universe and allow you to hold your whole portfolio in one place, making it easier to monitor and review. They are not free, however. Which one will offer best value for money for you will depend on how much you have to invest, what other investments you may plan to buy – like shares or investment trusts – and how frequently you'll trade.

The leading investment platforms compared


You don't need to be wealthy to invest. The majority of funds will either accept minimum lump sum deposits of £500 or £1,000 or they will accept monthly investments – usually from £50.

This means it is easier for investors with larger sums to invest to build a balanced portfolio: £200 a month means you can spread your money across four funds; £300 a month could mean six funds and so on. However that doesn't mean investors with less to invest cannot achieve a decent level of diversification.

Some funds are designed to meet the needs of investors who do not want – or cannot afford – to invest across numerous funds. Mixed asset funds, for example invest across cash, fixed interest (including corporate bonds) and stocks and shares.

Alternatively if you want to be fully invested but have money spread across the world you can go for a global fund - with investments in developed and developing economies.


If you don't need a 'one stop shop' fund that offers instant diversification you need to think a bit more about where to invest.

UK equities are a popular starting point - we all have a vague idea at least of what is going on in our own economy and are likely to be familiar with many of the companies these funds invest in.

Once you have core holdings in the UK, you may look to invest in other developed markets including Europe and the US. Or if you have a higher appetite for risk you may wish to consider Asia and the emerging markets or Brazil, Russia, India and China, collectively known as the 'Bric' economies.

How to choose the right funds for you

For ideas for funds across the investment universe check out the Moneywise Fund Awards 2013.


When you have gone to so much effort to choose the right investments for you, in the cheapest way, the last thing you want to do is give any of your hard-earned returns to the taxman.

Without any planning you could end up paying income tax on some proceeds and capital gains tax when you cash in your investments. But the good news is that the majority of UK investors can shelter all of their investments from tax with a stocks and shares Isa.

If you are saving for your retirement and are confident you won't need your money until then you can get tax relief on contributions by holding your funds in a self-invested personal pension. Both types of 'wrapper' are available from investment platforms.

How to avoid paying tax on your investments


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